Earnings Cheat Sheet: Dollar General Lifts Capital Investment, Shares Trade Lower

Goodlettsville, TN-based Dollar General Corporation (NYSE:DG) is a discount retailer of general merchandise and employer of just under 80,000 people. The company sports a $10.59 Billion market cap, a trailing P/E ratio of 23.91 and a forward P/E ratio of 14.77. This morning, Dollar General reported its most recent quarterly report. Although the company raised its outlook and showed significant year-over-year improvement, shares are trading down 7% on profit taking. Here’s the breakdown:

Earnings: Increased by 69% to $.37 per share, or $128.1 million, compared to $.24 per share, or 75.6 million, in the same period a year ago.

Revenue: Increased 10% to $3.22 billion, compared to $2.93 billion in the prior year.

Actual versus Wall Street Expectations: Earnings of $.37 cents per share beat expectations by $.02 cents.  The consensus analyst earnings expectation was  $.35 cents per share. Revenues slightly missed the expected $3.23 billion revenue estimate (Thomson Reuters).

Notable Stats: Dollar General plans to open 600 new stores and remodel or relocate about 500 stores. The total cost of the plan will be $410 million to $430 million, up from the prior estimate of $350 million.

The 2010 gross profit rate increased to 31.4% of sales from 30.8% of sales in the 2009 period.

Third quarter 2010 operating profit increased by 26.9% to 8.5% of sales, compared to 7.4% of sales, in the 2009 third quarter.

Outstanding long-term obligations, including the current portion, were $3.29 billion, a decrease of $844 million, or 20%, from the prior year.

The effective income tax rate for the 2010 quarter was 35.6% compared to a rate of 41.0% for the 2009 quarter.

In 2011, the Dollar General plans to open approximately 625 new stores.

Did You Hear That? Rick Dreiling, Chairman and CEO, stated, “Dollar General is having a great year…Even as the macroeconomic environment continues to be volatile for our customers, our strong results are top-tier among retailers. As a result, we are raising our full year adjusted earnings per share guidance to the range of $1.78 to $1.81.”

Commentary: Over the course of 2010, shares of DG are up from the low 20’s to the low 30’s. A frugal consumer mindset during a shaky economic recovery has yielded a very solid 2010 for Dollar General. On a technical basis, shares broke out of a trading range in November above the 50-day moving average. The company is preparing to invest in both the re-design of current stores and expansion of new stores. The announcement of the larger company investment struck a cord with investors today as they booked gains and sold shares. Given the latest pullback, and positive forward guidance from the company, shares should look to become more attractive to buyers in the near-term once again.

Disclosure: No position in DG.

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